SAN FRANCISCO – Facebook today filed to go public in a bid to raise $5 billion with a mammoth stock offering .

Facebook's IPO has been eagerly anticipated as a defining moment for the latest Web investing boom. The social-networking company, with more than 800 million members and strong sales of about $4.3 billion last year, has redefined the way millions of people worldwide interact and share information on the Internet.

A Facebook valuation of roughly $100 billion would rank the company just below McDonald's, which is currently 25th, at $101.5 billion, says Howard Silverblatt at Standard & Poor's.

In the proposed stock offering, the 8-year-old company detailed its financials for the first time ever. It also stated the various competitive risks to the company.

Facebook shares could start trading as soon as May.

Advertising uncertainty

Once Facebook stock starts trading, the onus is on ramping up revenues to maintain such a lofty valuation. Facebook's fortunes hinge on advertising, which accounted for 89% of its annual revenue last year, or about $3.8 billion. Google raked in $37.9 billion last year, 96% of that from ads.

The good news is Facebook commands a 28% chunk of the U.S. online-display ad impression market, up from 21% a year ago, says market researcher ComScore. Its closest competitor, Yahoo, had 11% of the display-ad market, up slightly from 10.9% in 2010.

The bad news is that Facebook ad sales worldwide are slackening. They grew 104% in 2011 but are expected to climb just 52% to $5.8 billion this year and only 21% to $7 billion next year, according to eMarketer.

"Facebook is not as effective as paid search (on Google, Yahoo and Microsoft)," says Dave Beltramini, director of online strategy for G5, a marketing services firm. "The intent of consumers on Google is more about shopping; on Facebook, people are more social, looking at photos of their friends' kids."

Facebook fares poorly in a key pricing metric used in the industry to measure the value of ad inventory in reaching an audience. Its CPM, or cost per thousand, is 22 cents, less than half the industry average for the Web (50 cents) and minuscule compared with Google ($10 to $12), says Chris Moore, a partner at venture-capital firm Redpoint Ventures.

"Users are looking for something on Google (search)," Moore says. "There is nothing that approximates that on Facebook."

Typically, advertisers use Facebook to build brand engagement, and convert (make sales) through Google, says Melissa Hodgdon, media director at marketing agency Engauge, which works with Facebook and Google.

Improving its CPM is a matter of Facebook "targeting" what users subscribe to and status updates from friends, says John Manoogian , chief technology officer of social-advertising company 140 Proof. "They're not taking advantage of the feed. They're still putting most of their weight into the right" side of a member's profile.

Facebook intends to develop ads that are more integrated into user profiles, such as those that essentially "freeze" a brand's newsfeed post and turn it into an ad that's only visible to someone following that brand, or a friend of a follower, says Rebecca Lieb, an analyst at market researcher Altimeter Group.

Sales beyond advertising seem overblown for now. Despite the hype about virtual goods — the cow you might buy on Zynga's FarmVille, for instance — the category only produced $470 million for Facebook last year, a relative pittance.

But Facebook could benefit greatly from mobile ads as more smartphone users work and shop from iPhones and Android devices, says Raymond Rouf, CEO of social-marketing service GraphScience.

Facebook's IPO Timing

Facebook was forced to file to go public because it ran up against the limits of the 500-shareholder rule. Private companies with more than $10 million in assets are required to file detailed financials with the Securities and Exchange Commission once they exceed 500 stockholders.

The social giant passed those marks last year, making the timing of its IPO a widely anticipated move to meet an April 30, 2012, deadline.

Heated competition in social networking also required Facebook to load up on cash to fend off rivals, say industry experts. "There's always the threat of competition, and they (Facebook) always need to stay one step ahead," says Reena Aggarwal, professor of finance at Georgetown University's McDonough School of Business.

Google's foray into social networking last year with Google+ represents the biggest competitive threat to Facebook. Google CEO Larry Page said in the search juggernaut's fourth-quarter earnings report that the nascent social network has hit more than 90 million users. That's "well over double what I announced just a quarter ago," he said.

Yet, some may still question whether Google+ is a passing fad with a limited audience. It's no small secret in Silicon Valley that Google has struggled to prove its mettle in social media. The company's Orkut social network finds its largest audiences in Brazil and India but has otherwise failed to gain significant traction.

And nobody forgets Google's ill-fated Buzz social network. That one remains one of its worst privacy blunders to date, landing it under 20-year privacy review with the Federal Trade Commission last year, and serves as reminder of Google's awkward social advances.

Still, Google's Page has made it clear that successful social products will be rewarded within the company. And the speed at which Google+ engineers have begun unleashing new features puts Facebook in the unusual position of making reactive moves to match Google+ in areas such as video chats and games last year.

Taking in some cash will certainly help Facebook finance a huge ramp-up in its war with Google, says IDC analyst Karsten Weide.

"I think they're (Facebook) trying to get to market as quickly as they can to cash in as quickly as they can," he says. "The concern is that Google will actually get it (Google+) right."

The cash infusion could be used on major acquisitions or expansions into new technologies for battle as well, says Aggarwal.

"The market is going to expect these very high growth rates," she says. "If expectations are not met, the stock will get beaten."

While investors' interest in IPOs and Internet companies is likely to be reignited with the Facebook deal, don't expect that enthusiasm to open doors for many more companies, says Lee Simmons, industry specialist at Dun & Bradstreet. He sees Facebook as a unique company but contends that while investors will clamor for a piece of it, that won't spark any sort of Internet IPO land grab.

"Facebook certainly is in a class of its own. There will be some firms that can ride its coattails, but for a short period of time," he says. The strongest factor in the number of IPOs won't be Facebook, but rather the health of the economy and the direction of the stock market.

Investors looking for a glimpse of the future need only look back to May, when professional networking site LinkedIn had its IPO. Initially, it paved the way for other Internet IPOs. But ultimately, largely because of the stock market's weakness in the summer, 2011 was a relatively weak year for IPOs. Last year, there were 125 U.S.-based IPOs, down 19% from 2010, says Renaissance Capital.

Though LinkedIn and Groupon both had successful offerings last year, their shares are now well below the first day's trading prices. LinkedIn is more than 24% below its May debut, and Groupon is almost 18% below its first trades in November.

IPOs are "very vulnerable to economic activity," Simmons says. And the economy and the stock market "dictates how the IPO market reacts."

Investors are watching to see how shares of other social-networking companies react to the Facebook IPO. Shares of Zynga, maker of games primarily played on Facebook, have enjoyed a lift since last Friday, when speculation about the Facebook IPO intensified. Shares of Zynga closed at $10.42 Tuesday, up 9.5% from their $9.52 close last Thursday, the day before Facebook IPO speculation kicked into high gear.

The bump in Zynga shares is caused when some less sophisticated investors buy the shares, thinking they've found a way to catch the Facebook frenzy early and in a less obvious way, says Francis Gaskins of IPODesktop.com. "They think Zynga is a cheap way to play Facebook. It's the Facebook effect," he says. "Zynga (stock) might benefit (in the short term) because it's the tail behind the Facebook dog," he says.

But Gaskins thinks the short-term frenzy will be very fleeting as the reality of the business takes control of Zynga's shares. The company relies on a few customers who actually pay for the games, he says. Additionally, the company is reliant on having big hits, which is difficult to do consistently with fickle online gamers, he says.

Internet stocks have already been performing better leading up to the Facebook IPO. The e-Consumer 25 index of USA TODAY's Internet 50 index notched a record high Monday, thanks in part to a 6.1% rally this year. The e-Consumer 25 index contains Internet companies that get most of their revenue from consumers. Meanwhile, the USA TODAY Internet 50 Index, containing the largest Internet stocks, hit a 2012 high Monday following a 7.7% rise this year.

Wed Feb 01, 2012 5:21 pm

penelope

Joined: 02 Nov 2002
Posts: 595

If you'd like to keep my FB private except to those people you're friends with, do the following: Hover over your friends names and in a few seconds you'll see a box that says : "Subscribed". Hover over that, then go to "comments and likes" and unclick it. That will stop their posts and yours from showing up on the bar side for everyone to see, but most importantly it limits hackers from invading your profiles.

Wed Feb 01, 2012 7:57 pm

anomalyLoserface

Joined: 22 May 2008
Posts: 2648
Location: DFW, TX

What's this shit I heard that David Choe has $200 million of Facebook stock for paintings he did years ago? He's the older Korean dude in the Thumbs Up documentary. He also did the cover art to Linkin Park/Jay-Z album, Collision Blah Blah.